Online foreign gaming providers required to register for VAT under new legislation – even if they are not registered under the National Gambling Act

vat 1New legislation requiring foreign suppliers of electronic services to register for Value Added Tax (VAT) in South Africa may prove to be challenging for those providing online gaming services – especially as the supply of these services is not yet fully included in South Africa, says PwC. “Recent changes to the VAT legislation place a VAT registration obligation on these suppliers, irrespective of whether they are registered under the National Gambling Act of 2004,” says Gerard Soverall, PwC Head of Indirect Tax for Gauteng. The new legislation requiring foreign suppliers of electronic services to register for VAT in South Africa as soon as the total value of such supplies reaches R50 000 (about USD 4 500) came into effect from 1 June 2014.

Electronic services that will be subject to VAT include, amongst others, the supply of games and games of chance by means of any electronic agent, electronic communication or the internet. The supply of games or games of chance can be divided into three categories, namely:

· The supply of any electronic game (including any internet based game or multiplayer role player game);
· The supply of any interactive game (where such game is a game of chance or a game where the result is influenced by the skill of the player or by chance or a combination or the two); and
· Electronic betting or wagering.

National Treasury published the final Regulation on the taxing of electronic services in South Africa on 28 March 2014; the purpose being to impose VAT at the standard rate (currently 14%) on supplies of electronic services made by foreign entities to South African recipients through placing an obligation on these foreign suppliers to register as VAT vendors in the country.
Soverall says: “This is not a new tax that is being introduced. VAT on the importation of services has always been part of the South African VAT system but compliance has always been patchy and often limited to the larger entities. The new rules seek to increase compliance and streamline the administrative process; it appears that Treasury believes that this could be achieved by shifting the responsibility to pay the tax from the importer of these services to the foreign supplier in certain instances.”

While the acceptance of bets or wagers by means of electronic communication and the supply of interactive games was included in the 2008 amendments to the National Gambling Act, no licenses have to date been issued to allow providers, local or foreign, to supply interactive gaming as a form of gambling in South Africa. “Consequently, and since the National Gambling Amendment Act No 10 of 2008 (the Amendment Act) has not yet been promulgated, the making available, advertising and engaging in interactive gaming remains unlawful, irrespective of whether the online operator is licensed in any other jurisdiction or whether the servers of the operator proving these services are hosted outside the country,” adds Nikki Forster, PwC Leader of Hospitality and Gaming.

An interactive game is defined as a gambling game played or available to be played through the mechanism of an electronic agent accessed over the internet. According to the National Gambling Act a gambling game is regarded as game that is played upon payment of any consideration, with the chance that the person playing the game might become entitled to, or receives a pay-out, and the result of the game might be determined by the skill of the player, or the element of chance.

Care should be taken by electronic suppliers who make games available through the internet. Should the player stand a chance to become entitled to a pay-out, which includes money, merchandise and anything else of value won by a player, the supplier could be regarded as an interactive game provider for the purposes of the Act.

The supply of interactive gaming as defined in the National Gambling Act is without doubt an electronic service as set out in the Regulation, says Jana Botha, PwC Senior Manager in Indirect Tax Services. “As a result, any foreign provider of interactive gaming is legally obliged to register as a VAT vendor in South Africa if it derives more than R50 000 turnover from interactive gaming activities.

A draft online gambling bill, which aims to provide a legal basis for online gambling in South Africa, was recently published for comment where after the Portfolio Committee on Trade and Industry will debate the bill’s merits before making a decision to table it in Parliament for a vote.

It may take some time before the ability to provide online gambling services is fully integrated into South African law and the relevant licenses issued to interactive gambling providers. Despite this potential stumbling block, in the interim, foreign online gaming providers are expected to register for VAT in terms of the Regulation, concludes Botha.

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